In a Yahoo Finance article, The Tinley Beverage Company (CAN:TNY / US:TNYBF) stated that it expected “to announce a deal with a Canadian partner” before cannabis-infused beverage actually hit store shelves in Canada. This is expected to take place by mid-December.
Why Canada?
Tinley’s CEO, Jeff Maser explained.
"Where the rubber hits the road is very much on cost. People enjoy these drinks, but they are too darn expensive. It’s not because of the THC. THC is actually one of the least expensive inputs to our product,” Maser said. “The fixed costs are mainly labour and production.”
Cannabis drinks sell for $6 to $10 per serving in the U.S., he said, several dollars more than a beer or cooler, and two to three times the cost of an equivalent amount of dried pot. He expects Canadian prices will be less expensive due to the fact that producers have better access to financing and will build larger production infrastructure.
Cannabis drinks sell for $6 to $10 per serving in the U.S., he said, several dollars more than a beer or cooler, and two to three times the cost of an equivalent amount of dried pot. He expects Canadian prices will be less expensive due to the fact that producers have better access to financing and will build larger production infrastructure.
Why is the price of cannabis-infused beverages versus alcoholic beverages so critical? The Seed Investor has previously connected the dots here.
The single-largest potential revenue stream for the cannabis industry is as an alcohol-substitute. The alcohol industry is a $1 trillion per year revenue pie.
Sales of alcohol products are now in permanent decline due to the mounting health risks associated with alcohol use. Cannabis is safe.
If just 15% of global alcohol consumption shifted to cannabis, that would represent an additional $150 billion per year in cannabis revenues. In Canada, that would translate into an additional $3 billion per year in cannabis revenues.
Cannabis-infused beverages are the obvious vehicle to claim those billions. Canadian consumers want these products. A May 2019 report by Cowen Equity Research found:
- 70% of Canadian consumers who consume both cannabis and alcohol report reducing their alcohol consumption as a result (compared to 64% of U.S. consumers)
- In giving their reasons for using cannabis, 41% of Canadians explicitly use cannabis “as an alternative to alcohol”
The only thing standing in the way of all those additional billions in cannabis revenues is price.
Why has Colorado been much more effective than California in reducing the cannabis black market, and bringing all those revenue dollars to the legal industry? Price.
Colorado slashed its taxes on cannabis products from the initial rate. This made legal cannabis products price-competitive with the black market. Consumers made the move.
Canadians want (legal) cannabis instead of alcohol. Canada’s provinces are finally (more or less) getting their act together in opening up retail cannabis stores. Sales have now grown at a double-digit pace for three consecutive months.
In October, Phase 2 of legalization becomes a reality in Canada. This includes cannabis-infused beverages.
A recent Seed Investor article has focused on the potential here.
…Presented with these increasing risks to their health and their lives, people are reducing alcohol consumption or giving it up entirely. Enter cannabis.
Cannabis is non-toxic and non-addictive. It carries no serious long-term health risks. It’s safe in conjunction with other drugs.
Solution: bottle cannabis (i.e. the cannabinoids contained) into beverages and consumers can drink these beverages socially instead of dangerous alcohol products.
Cannabis is non-toxic and non-addictive. It carries no serious long-term health risks. It’s safe in conjunction with other drugs.
Solution: bottle cannabis (i.e. the cannabinoids contained) into beverages and consumers can drink these beverages socially instead of dangerous alcohol products.
Several Canadian cannabis companies were mentioned in that article as targeting infused beverages. This includes Canopy Growth Corp (US:CGC / CAN:WEED), HEXO Corp (CAN: HEXO / US:HEXO), Sproutly Canada (CAN:SPR / US:SRUTF) and Hill Street Beverage Company (CAN:BEER, US:HSEEF), via its partnership with Lexaria Bioscience (CAN:LXX / US:LXRP).
Other companies that have already announced plans to enter this space include: Tetra Bio-Pharma (CAN:TBP / US:TBPMF), Organigram (US:OGI / CAN:OGI), AgraFlora Organics (CAN:AGRA / US:PUFXF / GER:PU31), as well as private company, BevCanna Enterprises.
Valuations are extremely compressed for Canadian cannabis companies. Cannabis sales are rising strongly. New markets are about to open – including the market for cannabis-infused beverages.
This is a great time for cannabis investors to be positioning themselves.
DISCLOSURE: The Writer personally holds shares in Hill Street Beverage Company.